One of the key factors investors in mining stocks have to consider is the potential for consolidation. Indeed, finding a mega-cap gold stock with excellent growth potential isn’t easy.
However, the recent combination of Kirkland Lake Gold (TSX:KL)(NYSE:KL) and Agnico Eagle (TSX:AEM)(NYSE:AEM) certainly makes an intriguing case for investors on the fence about growth in the gold mining space. These companies are both likely to benefit from the combination. Accordingly, we’ve seen the stock prices of both rise following the deal being announced (though Kirkland Lake did drop heavily on the announced discount Agnico Eagle would be paying to acquire this gem).
Here’s why I think either stock is a great buy right now ahead of this merger.
Low-premium deal between Agnico and Kirkland Lake
As mentioned, one of the intriguing aspects of this merger deal is the relatively low premium paid by Agnico Eagle to acquire Kirkland Lake. I mean, Kirkland Lake is among the best-quality miners out there. One might expect to see a substantial premium paid for these assets.
Shares of Kirkland Lake Gold and Agnico Eagle Mines dropped after these two miners announced a “merger of equals.” Indeed, this deal provided Kirkland Lake investors with a lesser deal premium compared to other gold combinations.
This transaction worth $13.4 billion (US$10.6 billion) creates one of the largest bullion producers in the world. It follows other huge takeovers in recent years that contributed to the industry’s reshaping.
Indeed, upon reviewing the deal more closely, there’s a lot of value to be had for both parties. This deal cements the combined entity as a mega-cap gold mining behemoth. Those concerned about the ability for either gold miner to compete no longer have that worry.
That defensiveness related to size is worth a lot.
The combination of Kirkland and Agnico will give rise to a miner having assets in Finland, Mexico, Canada, and Australia. Besides this, the company will also generate anticipated production of 3.4 million ounces of the yellow metal in 2021. This, in turn, helped to elevate its ranking among the senior gold producers in the world.